Financial Accounting Module 1| 200 QUESTIONS| WITH COMPLETE SOLUTIONS

What two things does financial accounting consist of correct answer: measuring and reporting What forms of businesses do we measure and report for? correct answer: Proprietorship, partnership, corporation What are separates a proprietorship and a partnership from a corporation correct answer: the owners and the businesses are the same entity What does unlimited liability mean? correct answer: Unlimited liability means that sole proprietors and general partners must pay all debts and damages caused by their business. They may have to sell their houses, cars, or other personal possessions to pay business debts. Who pays taxes on the business in a proprietorship or partnership correct answer: the owners or the partners What is the advantage of a corporation correct answer: it has limited liability. lenders cannot go after the shareholders What is a disadvantage of a corporation correct answer: the corporation pays taxes as an entity and then shareholders pay taxes on their earnings. It is taxed twice What are the assumptions of financial accounting correct answer: 1. separate entity - we treat the businesses and owners as separate entities 2. unit of measurement - we decide of a currency to measure everything by 3. going concern - we presume the company will continue to operate-- it will be ongoing 4. periodicity - we presume we can pick a time period and measure a company's financials for that period 5. materiality - the only information that will be disclosed in financial statements is info that those who rely on the financial statements will believe are useful What groups use financial reports correct answer: 1. investors (stockholders) 2. creditors (banks) 3. government agencies (SEC, IRS) 4. company management 5. financial analysts What does GAAP stand for? correct answer: Generally Accepted Accounting Principles What does IFRS stand for? correct answer: International Financial Reporting Standards What does FASB correct answer: Financial Accounting Standards Board. It consists of representatives from public accounting firms, industry, government agencies, and academia